COLOMBO: Sri Lanka’s once-buoyant, now-ailing stock market needs integrity and greater participation by foreigners to grow well, the new director-general of the country’s exchange regulator said.
Hareendra Dissabandara said the Securities and Exchange Commission (SEC) has to take strong steps to help improve the performance of the Colombo Stock Exchange.
“We need to introduce a number of changes to increase foreign investors,” Dissabandara, promoted from heading the SEC’s education and training division, told Reuters this week in his first interview since becoming director-general on April 2.
“We have to make possible arrangements to enter into MSCI Emerging Markets Index,” he said, adding one of his aims is to double the stake of foreign investors in Colombo’s market to 30 per cent.
Dissabandara said he knows that much needs to be done before Sri Lanka could fulfil requirements to be part of the MSCI index. Among the needed steps is updating the exchange’s payments system, establishing clearing corporations and increasing liquidity. At present, the capitalisation is about 2 trillion rupees ($15.69 billion).
In the next few months, Dissabandara said, the SEC expects to come up with a minimum three-year strategic plan for tackling problems that have hurt investor confidence.
“As the regulator, we have to manage systemic risks, protect investors, especially small and retail investors, and maintain a fair and transparent secondary market trading system,” he said.
In 2009 and 2010, after Sri Lanka’s long civil war ended, the Colombo bourse was a star performer. It rose 125 per cent in 2009 and another 96 per cent the next year.
But last year, when there were both economic and market problems, Colombo’s benchmark All Share Price Index fell 8.5 per cent. And so far in 2012 -a year when Asian markets have rallied — it has slumped 11 per cent in spite of eased restrictions on broker credit and margin trading.
Dissabandara faces “a very challenging task”, according to Sriyan Gurusinghe, president of the Colombo Stock Brokers Association, “but since he has been in the market for a reasonable period, I think he should able to resurrect it.”
Previous attempts by officials to change exchange rules and practices have met stiff resistance from some market players and brokers.
Dissabandara’s predecessor, Malik Cader, was transferred to the Finance Ministry in November after spearheading steep restrictions on credit, which brokers said hurt their volumes, and leading market manipulation probes that touched politically connected investors. One month later, SEC chairwoman Indrani Sugathadasa quit, saying she did so “to uphold her principles.”
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